The U. S. Securities and Exchange Commission (SEC) recently filed charges against Anthony Marsico, Arthur P. Pizzello. Jr., Robert Quattrocchi, and Timothy Carey for insider trading in the stock of Goodness Growth Holdings, Inc., a cannabis company now doing business as Vireo Growth.
The SEC’s complaint, filed in U.S. District Court for the Northern District of Illinois, charges all four defendants with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. While there are no provisions of the federal securities laws explicitly prohibiting illegal insider trading, the SEC utilizes the above-referenced fraud-based provision, which proscribes fraud in connection with the purchase and sale of securities, as its legal basis.
The SEC’s enforcement complaint alleges that Marsico, Pizzello, Quattrocchi, and Carey were all close friends, resided in the same suburban Chicago area, and were all members of the same country club, which Pizzello co-owned. The SEC further alleged in its court papers that they regularly called and texted each other, and socialized with one another, including golf and gambling.
Goodness Growth and Verano operated retail dispensaries and marijuana growth facilities in several states. In 2021, Verano – headquartered in Chicago – was actively working on entering into the coveted New York state retail cannabis market. At the time, Goodness Growth had one of only ten licenses to cultivate and sell cannabis in New York state.
Per the SEC’s court papers: Marsico, an Executive Vice President at Verano, was responsible for municipal government relations and real estate, which included responsibility for acquiring the proper licenses and approvals to open cannabis dispensaries in various jurisdictions. He learned that Goodness Growth was looking to be acquired and that Verano was planning to acquire Goodness Growth in an all-stock transaction valued at approximately $413 million. Marsico told Pizzello about the planned acquisition. Pizzello, in turn, then tipped Quattrocchi and Carey. In the following two months, all four defendants purchased thousands of shares of Goodness Growth. At the close of the market on the day of the public announcement, Goodness Growth’s stock share price skyrocketed by almost 42%.
The SEC asserted that the illegal insider trading proved quite profitable for some and not so much for others: Marsico had unrealized trading profits of $661,549, Pizzello had unrealized trading profits of $124,456, Quattrocchi had realized and unrealized gains totaling $28,136, and Carey had unrealized gains totaling $9,260.
Two Observations from Insider Trading Defense Attorney:
First, the SEC can and does seek disgorgement of unrealized profits derived from insider trading, even if the stock in question is held by the defendant and ultimately leads to a loss. The SEC usually calculates the stock price for purposes of disgorgement by taking its average two full trading days after the announcement. The SEC’s theory is that the trader-defendant had the ability to realize the profits but chose not to and thus cannot escape returning his ill-gotten gains simply because he chose to hold, and the stock price later declined.
Second, despite common misconception, the SEC will, if the evidence is compelling, pursue small dollar profit insider trading cases. The SEC’s institutional thinking is that it’s not the amount of profit made that is the key consideration, but rather the need for deterrence to disincentivize all illegal insider trading, notwithstanding the ultimate financial rewards realized, even if they are di minimis.
The SEC’s complaint seeks conduct based permanent injunctions, disgorgement, prejudgment interest, and civil penalties against the defendants along with an order barring Marsico from serving as an officer or director of a public company. Pizzello and Quattrocchi have each consented to the entry of judgments imposing conduct-based injunctions permanently enjoining them from violating Exchange Act Section 10(b) and Rule 10b-5 thereunder, and ordering them to pay disgorgement, prejudgment interest, and a civil penalty in an amount to be determined by the court.
David Chase is a former SEC Enforcement attorney that investigated and prosecuted insider trading cases while he served as Senior Counsel in the SEC. For the past twenty-five years, he has served as an insider trading defense attorney successfully and strategically representing individuals in SEC insider trading investigations. Whether you are in Chicago, Miami, New York City, New Jersey or California, Mr. Chase is able to represent you in a SEC investigation, whether it involves stock manipulation, insider trading, or investment advisor fraud. Speak with David about your SEC investigation at: 800-760-0912, e-mail him at: david@davidchaselaw.com or visit the Firm’s website at: www.securitiesfrauddefense.net.
